...And Does Anyone Know How to Define an 'American' Interest?

The Washington Post

Last year I woke up to discover that I'm now working part-time for a German
company named Bartelsmann AG. You see, when I wasn't looking,
Bartelsmann scooped up Random House, which has published several of my
books and still occasionally sends me exceedingly small royalty checks.
Bartelsmann is now the largest publisher of English-language books in the
world, and for all I know it may become the largest publisher of Chinese
books as well. Do I care whether an American-owned publisher (which may
print its books in Singapore, bind them in New Zealand and market them
through Hong Kong) gains better access to China than my own
Bartelsmann? Not at all, as long as the royalty checks keep coming.

Don't think me either unpatriotic or selfish. It's just my way of suggesting
that there's something missing in all the talk about how America will soon
have its goods on Beijing's streets and will own bits of Chinese industry. I'm
part of a global company, and if you aren't already, you may well be soon.
Yet, as the debate about trade with China shifts to Congress, you will hear a
lot of outdated notions about "American" industries and "American"
products. When companies lose their national identities in a blur of mergers
and acquisitions, would anyone say that what's good for DaimlerChrysler is
good for America?

This issue won't be discussed in Congress, which has to decide whether to
grant China permanent normal trading privileges. Instead, you'll be seeing
two cartoon images of what's at stake. Proponents will argue, as Treasury
Secretary Lawrence Summers did last week, that China's admittance to the
World Trade Organization would mean "more jobs for Americans" and "larger
export markets for American producers to provide high-wage jobs."
Opponents will claim with equal vehemence that the deal will mean fewer
jobs and lower wages for Americans, as hundreds of millions of
Chinese--earning a tiny fraction of our incomes and subjected to repressive
working conditions--crash the American market.

Neither image is correct. First, the deal won't affect the number of American
jobs one way or the other. The global economy doesn't contain a fixed
number of jobs, divided up among countries. Trade-opening agreements
don't add to the nation's stock of new jobs, as the White House has been
arguing since the NAFTA battle. Nor do they cause jobs to succumb to giant
sucking sounds elsewhere. We will continue to have as many jobs here as
the economy (and Alan Greenspan and company) allows, without inflation. It
may be hard for partisans to extol the advantages of trade or to conjure up
its horrors without resorting to hype about job gains or losses, but this kind
of talk clouds what's really at stake.

Second, the deal isn't really about "American producers" gaining access to
China. The old image of American companies making things here and then
exporting them to eager Chinese consumers ignores the new reality of
global commerce: American companies are making things everywhere and
selling them everywhere. And Americans are working for global companies
headquartered all over the place. General Motors makes cars in Germany for
export to Japan. Companies such as Compaq get their hard-disk drives from
Taiwan. Dell and Hewlett-Packard get their computer modems there. IBM
and Motorola make all sorts of gadgets in South Korea, Taiwan and the
Philippines. Boeing's aircraft parts come from 17 different nations.

So what does it mean for China to open its market to American companies?
Just this: American-owned, American-operated or American-sourced goods
and services--produced by Japanese, Taiwanese, Australians, Filipinos,
Malaysians, Indonesians, South Koreans and others around the world--will
now have a better shot at reaching Chinese consumers. The deal gives the
Big Three car makers better access to China, but don't think for a minute
that this will mean more cars coming out of Detroit bound for Shanghai or
Wuhan. Why would Ford want to ship cars all the way from here to there?
Ford will more likely assemble cars in China from parts made all over the Far
East.

Rep. Bob Matsui, an otherwise thoughtful Democratic congressman from
California, warned last week that "if we don't give China permanent trade
status, all other countries will get tariff reductions and we won't."

But who's "we"? The pronoun is as likely to refer to an American-owned
personal-computer plant in Singapore, run by a former Hong Kong national,
as to a plant in Nagoya run and staffed by Japanese but partially owned by
Americans. Does DaimlerChrysler count as "we" or "they"? Who knows?
More and more of its big decisions seem to be coming out of Stuttgart.

Foreign companies have been buying controlling interests in American
companies as fast as they can grab them. During the first nine months of
this year, foreign purchases of U.S. companies totaled $256 billion--more
than double the value of American buyouts of foreign firms, and already
higher than the previous record set last year, which was four times the
volume in 1997, according to J.P. Morgan. Meanwhile, American shareholders
are also buying up pieces of foreign companies, and foreign shareholders
pieces of American companies.

When British Airways scrubbed the Union Jack off the tails of its aircraft not
long ago, its chief executive explained that the airline was no longer a British
company with global operations but a global company that happened to be
headquartered in Britain. Sixty percent of its business comes from
non-British customers, and that's growing. An increasing portion of its
employees come from around the world. If you'd like, you can buy shares in
British Airways. Alternatively, you can stick with American Airlines (although
American also has a lot of non-American shareholders). Do you care which
company gets into China first?

Some of the China trade deal is about intellectual property, like software.
But intellectual property is even harder to pin down, in terms of where it's
from and who benefits by selling it. Consider a small software startup called
Planet-Intra.com, whose mailing address is in Mountain View, Calif. Its major
software product was written by a team in Croatia, its 37-year-old-founder
and chief executive is a Canadian who's been working in Hong Kong, its vice
president for technology is Russian, and its vice president for international
sales is a German living in Tokyo. Personally, I have no objection to
Planet-Intra.com getting its software into the hands of Chinese consumers,
but I'm not going to call my congressman to try to make that happen.

The real deal here isn't even about who will be selling what to China. It's
about who will be hiring Chinese to make things or do things there. Not only
will "American" auto companies be assembling cars there, but every major
"American" service business able to enter China will be hiring Chinese to
provide the services to other Chinese. Under the terms of the deal, U.S.
life-insurance companies will have the right to market their products in
China, but don't expect hordes of American agents to descend on Beijing.
The sales will be made by Chinese. Most of the profits will probably be
plowed back into the Chinese division. Even the insurance products are likely
to be designed by Chinese because they will have a better idea of what will
sell. So, in the end, the benefit to American shareholders will come from the
narrow stream of profits remitted back home. Global banks will have the
right to open branches in China, but don't expect bank tellers or branch
managers flying in from San Francisco. They'll be Chinese, too.

So what's at stake here for the average American? In the short term, not
much, unless you're heavily into the stock market. Individual Chinese
consumers won't buy much because they're very poor, but more than a
billion of them add up to a significant market, and potentially a nice return on
investments--whether you own a piece of DaimlerChrysler, IBM or
Bartelsmann.

Global companies also will be making a lot of stuff in China for sale around
the world. But this will affect workers in Thailand, Malaysia, Vietnam,
Indonesia and the Philippines far more than Americans, because low-wage
Chinese workers will be in direct competition with other low-wage workers in
Asia, none of whom approach the levels of productivity of workers in
advanced nations. That may mean further instability in a region that has
already been hammered by the currency crises of the past two years.

In the longer term, the wages of Chinese workers will probably rise along
with their productivity. That's good for us, and good for them. Twenty-five
years ago, the median South Korean wage was about 5 percent of the
median American wage; now it's nearly 45 percent. But there's no telling
how China will cope with the giant displacements from its state-owned
enterprises, where 60 percent of urban workers are now employed. Massive
unemployment will dampen wage gains over the next few years, and may
also cause social strains. China will also have an inequality problem. The
compensation of the small elite of graduates of Chinese universities--and
China's American-trained engineers and MBAs--already is rising precipitously
and will rise even faster when global companies bid more actively for their
services.

In the meantime, you're probably wise not to pay too much attention to
Americans who issue wondrous predictions or dire forecasts about what this
deal will mean for you. Trade is always a volatile political issue, inviting
demagoguery on all sides. Trade with China surely will invite even more.

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